Owlet, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to OLED Second Quarter Earnings Call. My name is Irene, and I will be coordinating this event. If you would like to ask a question on today's call, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I would now like to turn the conference call over to our host, Kurt Workman. Kurt, please go ahead.

Good afternoon, and thank you for joining us today. Earlier today, Owlet Incorporated released financial results for the quarter-ended June 30, 2022. The release is currently available on the company's website at investors.owletcare.com. Kurt Workman, Owlet's co-founder and chief executive officer, and Kate Skolnick, chief financial officer, will host this afternoon's call. Before we get started, I would like to remind everyone that certain matters discussed in today's conference call and or answers that may be given to questions asked are forward-looking statements that are subject to risks and uncertainties relating to future events and or the future financial performance of the company. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are detailed in the company's most recent public filings with the US Securities and Exchange Commission, including its quarterly report filed May 13, 2022, and other reports filed with the SEC, which can be found on its website at investors.outletcare.com or on the SEC website at www.sec.gov. The information provided in this conference call speaks only as of today's live call. Owlet disclaims any intention or obligation, except as required by law, to update or revise any information, financial projections, or other forward-looking statements, whether because of new information, future events, or otherwise. Please also note that Owlet will refer to certain non-GAAP financial information on today's call. You can find reconciliations of these non-GAAP financial measures to the most comparable GAAP measures in the company's earnings press release which is also available on the company's quarterly results page of its website. I will now turn the call over to Kurt.

Thank you, Mike. Good afternoon to all who are joining us today. As always, we're grateful to you and to the millions of parents who continue to root for and support Owlet as we work to build a connected nursery ecosystem. My remarks this afternoon will focus on our results for the second quarter and year-to-date. and our plan forward as we work to deliver on our vision to every baby and every parent. We remain steadfast and committed to that, and we're proud of the business we've built. Later in this call, I'll detail our approach for the remainder of the year, how we're navigating current headwinds and updates we're making to our business as we work toward profitability. I'll look at the second quarter of 2022. Owlet generated net revenues of $18.3 million, which fell short of the guidance we shared in Owlet's last earnings announcement. We did not achieve the gross billings results as we expected in Q2, largely due to two main reasons. I'll first address the outlet-specific dynamics, and second, discuss the macroeconomic headlines. Since we'll be referencing this throughout the call, for a quick baseline definition, we refer to sell-in as a measure of the number of units retailers purchase from outlets to stock their shelves, and sell-through is when the unit is actually sold to the end consumer. Q2 was our first full quarter of Dream product availability online and in-store at all of our retail partners, all at online and with our Amazon distribution partners. As a reminder, following the launch of the Dream products in January, much of the initial sell-in and online in-store availability of our Dream products took place late in Q1. From Q1 to Q2, we experienced over 40% growth in sell-through units for our Dream products across our channels. While this rate of growth was good from an initial product launch standpoint, it was a slower pace of sell-through than we had expected, and consequently, we had more aggressive Q2 sell and sales expectations. In addition, along with many consumer brands, in Q2, Owlet began experiencing the effect of macro headwinds with retailers, adjusting their projections and ordering cadence in terms of weeks of supply as they began to defensively position their balance sheet compared to last year. This combination of factors resulted in lower than expected gross billings for the second quarter of $22.7 million. With the second quarter revenue results and current macroeconomic factors in mind, we're realigning our operating plan for the second half of 2022. Outlet's three primary areas of focus are, first, achieving strong sell-through of our core products, including our stock and camera line. Second, making strides in our medical device submissions. And finally, efficiently managing our balance sheet and expenses to reach break-even adjusted EBITDA. First, our focus on achieving strong sell-through of our core products to drive top-line revenue. We are seeing encouraging signs of our underlying strategy for our current products taking hold that affirm our product market fit and demand. The sell-through rate over the past few months is similar to and starting to pace ahead of the volume we did in 2020. That is the same business we took public, so we are confident in our ability to continue our brand leadership in a connected nursery ecosystem and market fit to the value proposition of our Dream product. Additionally, we started the year with a brand new product. We now have an average of four plus stars on all of our products, which is extremely important to ongoing consumer sales. Dream Duo was recently named a best baby monitor by CBS News. And the number of expecting parents adding dream products to their baby registry continues to grow. Post-purchase metrics, including that promoter score, remain strong and rival what we previously saw with the Smart Stock. We continue to drive new levels of marketing support and retail partnership with the Allett brand. Our recent Amazon Prime Day in July was Allett's best ever, where the number of units sold were double our internal forecast, and Allett ranks as the number one baby monitor on Amazon in the U.S. We're also expanding to about 1,200 Walmart doors and adding the Dream Duo as a product offering to 600 existing Target doors. Internationally, we're pleased with the progress we've made in launching outlet products in the parts of Asia, with South Korea market opening this month. Year-to-date, international gross billings are up over 60%. Combined, we believe these are leading indicators of a solid foundation of sell-through that we build on with consumers and retailers through the remainder of the year. In July, we launched our newest technology domestically, including the next-generation nursery outlet, CAM2, and the predictive sleep technology tool. We're continuing to load into our retail partners through the remainder of Q3, and CAM2 will officially launch in international markets this quarter as well. The dream platform we're building today for our SOC line is part of what we will leverage in our medical devices. expanding on our core technologies to accelerate adoption and add use cases for our monitoring technologies. Our team is working on several medical device submissions, including in the U.S. and internationally. Notably, we plan to submit our 510K application to the FDA for our Babysat device in the coming weeks. Babysat is intended to be a prescription product for use with sick babies under the care of a physician and will address the most vulnerable populations. With existing CPT codes available, we believe the BabySac could be reimbursable, which will also improve accessibility to this critical technology. We have also recently aligned with FDA on our submission for our software as a medical device features as an over-the-counter product that offers heart rate and oxygen notifications on top of the existing DreamSoc sleep tracking capabilities. We believe we are on track to submit our application in Q4. Finally, international clearances are part of our measure of success as we work towards submissions in Europe. Adding cleared medical devices to our offering will further enhance the Allen value proposition and better empower parents to provide care at home. I believe we have the right team in place to execute against these submissions, and we will continue to report on these milestones in future calls. The third area of focus for Outlet is to efficiently manage our operating model as we navigate the sell-in and sell-through demand trends effectively with our retail partners within macroeconomic headwinds, and as we resolve the working capital hangover from the FCA warning letter process. Prior to taking our company public, we were driving lean leverage in our business and adapted our investment strategy when we went public last July. In 2021 and the first half of 2022, We invested in scaling our business, marketing spend, and future investment in our product portfolio. Based on macroeconomic conditions in the market, we are adjusting our 2022 operating plan to reduce our operating costs and accelerating our plans to drive the business to break even adjusted EBITDA in 2023. Toward these goals, in late July, we implemented a restructuring program to streamline our organizational structure, reducing operating expenses and managing and conserving our cash resources. the second half of 2022 we're focusing on being the baby monitor of choice for families which includes further enhancements and improvements to the dream stock and adding features that make this the monitor for every baby this means we're elongating our launch timing for some new product portfolio initiatives like smart cred however it remains an important part of our future roadmap we believe this focus on operating efficiency will allow us to better control our destiny and be more nimble in the face of a changing economy and business environment. We're optimistic these pivots will put the business on track for profitability sooner as we build on the foundation of our core technologies, accelerating adoption and expanding use cases with medical devices. Finally, I want to take a moment to thank Mike Abbott for his years of service at Outlet. Mike announced today that he's resigning from his role as president and board member at Outlet. to spend more time with his family and pursue new opportunities. Mike joined Owlet over four and a half years ago, and in his time here, he was instrumental in our expansion to a global public company. We wish him well in his next chapter. I'm grateful for a passionate team that's been dedicated to improving lives and helping parents navigate this incredibly important part of their journey. Outlet is empowering parents with information they need to better deliver care at home, and our vision is that every family has access to the tools and technology they need to keep babies safe, healthy, and happy. Thank you again for your continued support of Outlet and our mission. I look forward to sharing more updates and future calls. Kate, I'll now turn the time over to you.